Validus Holdings prices upsized new issue; more deals eyed; reform push helps GSE paper

By Stephanie N. Rotondo

Seattle, June 6 – More deals were coming out of the primary preferred stock market on Monday as Validus Holdings Ltd. priced $150 million of series A noncumulative preference shares.

In addition to the Validus offering, a trader said he was hearing of at least two more deals for the week.

Shortly before the close, the Bermuda-based reinsurance company priced the deal, selling $150 million of the preference shares at par to yield 5.875%.

Price talk on the Validus deal was 6% to 6.125%, according to a market source.

A trader said the issue was bid for at $24.70 in the early gray market. Post-pricing, the bid was $24.95, a second market source said.

BofA Merrill Lynch, Morgan Stanley & Co. LLC and UBS Securities LLC ran the books.

The company plans to use the proceeds for general corporate purposes.

As for the secondary space, it was weaker on a speech from Federal Reserve chairman Janet Yellen.

The Wells Fargo Hybrid and Preferred Securities index closed down 31 basis points. The index was off 16 bps at mid-morning.

Yellen spoke at the World Affairs Council of Philadelphia at 12:30 p.m. ET. The market was hoping she would give more guidance on an expected interest rate increase in the coming months – especially in the wake of the disappointing jobs report last week. The report said nonfarm payrolls improved by just 38,000 jobs in May, the lowest gain seen since 2010.

In her speech, Yellen said the jobs report was “concerning” but that gradual rate hikes continued to be the appropriate course of action.

She did not, however, give any clues as to whether or not a rate hike would occur at the Fed’s meeting next week.

Fannie, Freddie up

Fannie Mae and Freddie Mac preferreds remained on an upward trajectory on Monday as recent developments in GSE-linked lawsuits have spurred both sides of the Congressional aisle to renew calls for GSE reform.

Nearly 3 million of Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) traded, rising 4 cents to $4.76. Over 1.8 million of Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) changed hands, gaining a nickel, or 1.09%, to $4.65.

In mid-May, a group of 12 organizations – right-center groups, according to one news outlet – wrote a letter urging Congress to pass a reform bill sponsored by representative Mick Mulvaney (R, S.C.). Late last week, a group of 32 Democratic members of the U.S. House of Representatives signed a letter to the Federal Housing Finance Agency’s head, Mel Watt, as well as Treasury secretary Jack Lew. The letter urged both parties to rethink a policy that requires both Fannie and Freddie to reduce their liquidity positions to zero by Jan. 1, 2018.

Creditors of the GSEs have been asking for the same thing, even going so far as to file several lawsuits fighting the government’s 2012 “net worth sweep” decision. Plaintiffs in those lawsuits have argued that in doing so, the mortgage guarantors cannot build up any sort of capital buffer to protect themselves – and taxpayers – in the event of another financial crisis.

In recent weeks, judge Margaret Sweeney of the Federal Court of Claims has unsealed more documents from the government, each of which appear to give plaintiffs more leverage in their case.

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